It’s Beginning to Look a Lot Like a Crisis

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Financial crises are sort of like snowflakes: No two may be exactly the same, but they sure look enough alike that you can tell what they are.

Emerging-market currencies and stocks tumbled again today, part of a long selloff that increasingly has a crisis-y feel. Satyajit Das lays out all the hallmarks of a standard EM crisis: “a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves. Season with narrowly based industrial structures, reliance on commodity exports, institutional weaknesses, corruption and poor political and economic leadership.”

EEM (weekly) still has more to fall

Remind you of any country in particular? It could apply to Turkey, certainly, where inflation has spiked and a central bank of questionable independence is waiting too long to doing anything about it, writes Marcus Ashworth.

READ  The major risk for this crisis is the same that difficulted exit from last ones: the old interventionism.

It could also describe Argentina under past leadership, which has left such a mess for its current president that the IMF must soon bulk up its relief package or watch the crisis grow, warns Mohamed El-Erian. That said, Argentine President Mauricio Macri has harmed market confidence more than he has helped, writes Mac Margolis.

If current-account deficits and foreign-exchange reserves make your eyes glaze over, then you can look for sexier signs of market froth, in the form of honkingly enormous buildings and artificial islands. Malaysia is hard at work on such vanity projects right now, points out David Fickling – who notes there’s a reason these things tend to herald an impending crisis.

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EM Debt <2016 support